April is recognized each year as Financial Literacy Month, a part of the growing movement to equip Americans with the knowledge and skills needed to improve financial decision-making. Clearly, this need has never been greater. Only 37% of Americans had high financial literacy in 2015, down from 42% in 2009, according to FINRA Foundation’s National Financial Capability Study.
And, despite the fact that Texas is one of only six states in the U.S. that requires students to pass a financial management test for graduation, the statistics aren’t any better in our own back yard. According to a recent survey from credit score provider WalletHub.com, Texas ranked 40th in the nation for financial-education programs and consumer habits.
The perplexing backstory here is financial literacy appears to be declining at the precise moment that outreach and education programs on the topic have become more prevalent. In fact, many corporations, including financial institutions like GM Financial, have embraced their responsibility to address the marked decline of financial literacy in our communities. More than ever before, all types of organizations – non-profit, private-sector and government entities – are actively engaging resources and expertise to bridge financial literacy gaps. So, why does this decline persist? The reasons for this disconnect must be understood and addressed before real and lasting headway can be made.
To begin to truly improve financial literacy, we must acknowledge that financial knowledge itself is unequally distributed. Research from the Center for Financial Services Innovation (CFSI) shows, for example, that over two-thirds of African-American and nearly three-fourths of Latino households lack the savings necessary to recover from a traumatic financial event such as a job loss or medical emergency.
Keys℠ by GM Financial, a financial literacy program we launched late last year, reflects our own efforts at closing this gap. Since the program’s inception, we have pursued opportunities to bring basic credit, budgeting and personal finance education to underserved populations in North Texas.
The program, which includes live, interactive training sessions with a certified GM Financial facilitator, basic terminology guides, budget worksheets and access to free online tools and resources, has recently been selected for a recurring partnership with the City of Fort Worth, as part of the CAP (Community Action Partners) program.
This citywide initiative, which was selected for a recurring partnership with the City of Fort Worth as part of the CAP (Community Action Partners) program, provides comprehensive services to socio-economically disadvantaged Fort Worth citizens, including energy bill payment assistance, economic independence coaching, tuition reimbursement and more.
More effectively bridging the financial literacy gap also means starting earlier. As Nan Morrison, President and CEO of the Counsel for Economic Education, characterized the situation, “To be successful, most kids don’t need to learn about collateralized debt instruments, but they do need to know how to open a bank account, how much they need to save each month to reach their goals and, if they borrow this amount of money, how much money they will need to earn to pay it back.”
Despite that need and the clear data showing a strong correlation between financial literacy and social/economic mobility, again, the trend is troubling. The 2016 biennial Survey of the States by the Council for Economic Education reported that the number of states that require high school students to complete a course in economics has declined over the past two years. Without the tireless work of organizations like Jump$tart Coalition and Junior Achievement, along with the continued commitment of companies like GM Financial, S&P Global, PwC and many others, generations of Americans could be left behind.
Finally, for lasting, impactful solutions to the financial literacy challenge, the way we educate must be tactile, timely and accessible. For example, high school seniors are the ideal candidates for education oriented around the benefits – and risks – of taking out a student loans. And, similarly, just-in-time education can be helpful when taking out a mortgage or determining when to retire. For us at GM Financial, this means helping customers understand the differences between purchasing or leasing a vehicle, or explaining how a simple interest contract works – all of which encourage more informed financial decision-making.
There are many laudable and impressive programs that are taking aim at combating financial illiteracy. They deserve both our moral and financial support. But they also deserve our honest evaluation: What’s working, what isn’t, and how can we materially and tangibly move the needle to improve financial education? As corporate citizens and members of our community, I encourage anyone in a position to make a difference to ask that question this month and seek answers all year long. Let’s seize this opportunity to equip Americans with the knowledge and resources needed to secure a better financial future.